March 18, 2010

Japanese culture shifting on suits

In North America, dozens of legal complaints have emerged on behalf of car owners seeking compensation for everything from injuries to erosion of the resale value of their cars. So far in Japan, no lawsuit has been filed against Toyota related to the latest recall here, in which it recalled 223,000 vehicles of the Prius and other hybrid models to fix the control program for their brake systems.

In Japan…

Courts rarely award punitive damages

Class-action suits are more difficult to launch than U.S.

Recall rules are looser than U.S.

The culture plays down confrontation

But …

Recall requirements have been strengthened recently

The number of lawyers has boomed

Deregulation in legal system has spurred aggressive solicitation for clients

“In the U.S., you can go after a company citing anxiety caused by a faulty product,” says Tadashi Nakamura, a Tokyo lawyer familiar with auto recall issues. “In Japan, you have to prove the actual loss, and getting compensated for it is very difficult.”

Japanese courts rarely award punitive damages beyond compensatory damages, discouraging consumers and lawyers from suing companies hoping for fat payouts. Furthermore, class-action suits are rare in Japan, where proving connections between individual cases is tougher than in the U.S.

Recall rules are also looser in Japan than in the U.S. In Japan, auto makers are required to report recalls to the transport authorities only if the vehicles are found to have problems that fail to comply with the existing national safety standard. Other types of repairs are done on a voluntary basis without the supervision of the government, making this a more appealing option from the companies’ public relations perspective.

In the U.S., all vehicles must be recalled under the supervision of the National Highway Traffic Safety Administration if “safety-related defects” are detected, not just when failing to meet the existing standard. Vehicles with new types of problems not covered by the current standard would also be recalled.

The announcement of Toyota’s latest global recall was delayed, as the company debated whether the problem with the Prius’ brake system required a recall or just a voluntary repair. The company eventually went with a recall.

Still, the rules requiring recalls—and permitting lawsuits—have toughened in Japan in recent years.

Japan’s recall law was changed after Mitsubishi Motors Corp. was accused of hiding for years defects with its vehicles and conducting informal recalls in secret before tragic accidents occurred. In a case fought for several years, the country’s Supreme Court in 2008 handed a guilty sentence to the company and top executives of its truck affiliate.

The government strengthened its reporting requirement for recalls and system for gathering information on vehicle defects and potential problems.

That resulted in an increase in the number of recalls. During the fiscal year ended March 2008, Japan’s Ministry of Land and Transport received 295 cases of recall involving 5.4 million vehicles, similar to levels seen in the past few years. That compares with 93 cases with 1.1 million vehicles a decade earlier. In the U.S. last year, about 15 million cars were recalled.

While Japanese lawyers don’t expect the Toyota recall to create a boom in lawsuits, some are scrutinizing it for potential business opportunities.

Deregulation in the past several years has spurred more competition among lawyers in Japan, sending some to solicit customers aggressively. The growing creation of law schools modeled after U.S. institutions and a change in the bar exam system have allowed the number of lawyers in Japan to soar. And lifting of a ban on legal advertisement and mergers and acquisition have paved the way for the emergence of giant law firms with hundreds of lawyers.

Currently, 29,000 lawyers practice in Japan, up 68% from 2000. That compares to 1.18 million active attorneys in the U.S. last year. The number of civil cases filed in Japan, meanwhile, totaled 235,509 during 2009, up 73% from five years earlier.

Yukito Ishimaru, a 37-year-old lawyer who made a name for himself by going after consumer lenders for overcharging interest, thinks the Prius recall could result in “a fair number” of lawsuits seeking compensation for damages.

“Competition is boosting the quality of services and lowering prices of legal service in Japan,” says Mr. Ishimaru, who wants to beef up his firms’ businesses in traffic accidents and immigration services. “We are finally beginning to look like a normal industry.”

News of numerous class-action suits filed in the U.S. against Toyota has been reported widely by the Japanese media, drawing mixed reaction from Japanese consumers. In the U.S., litigation has been filed blaming Toyota for everything from implementing faulty systems that have caused fatalities to damaging the resale price of plaintiffs’ vehicles. In some instances plaintiffs’ attorneys are working together. Tim Howard, a law professor at Northeastern University in Boston, is leading a group of 35 law firms in 35 states to coordinate litigation against Toyota.

Some in Japan, feeling betrayed by the company, say Japanese consumers should become more demanding. “Toyota has been arrogant,” says Shuichi Horyoda, a 63-year-old financial industry executive. “It’s good that lawsuits are taking place now so Toyota will go through soul-searching.”

Others shrug them off, saying they are a typical overreaction by the aggressive American consumer and that such a confrontational style doesn’t belong in Japan’s harmonious culture. The Americans “express and talk about what they think and what they feel openly, but Japanese are not like that,” said Miyuki Oka, a 47-year-old homemaker. “We have a different culture.”